Congratulations! Buying your first vehicle is an exciting time.
Along with that excitement, naturally, come a lot of questions. It’s totally normal to wonder about your financing, whether you have positive, negative or no credit history. You may also be curious about the kinds of financing options available for first-time buyers.
This is where Drive® comes in, and we’re happy to help.
How to finance your first car purchase
Know how much you can afford
Budgets. Let’s face it, they’re not as exciting as buying a car. But they are a great tool for making sure you stay on track each month, and still have money left over for the fun stuff.
When creating your first budget, start simple. You can always get more in depth as you gain experience. Make sure to include things you pay for on a monthly basis – rent, utilities and your phone, for example. Then add in what you spend on food, or other expenses you’re aware of.
Don’t forget to “pay yourself.” This means putting a little money away for savings, but this money should also appear in your budget so you can count on recurring savings each month.
Once you have your budget calculated, you can see how much you’re able to put toward a car. However, keep in mind that your car has insurance costs, fuel costs and maintenance costs associated with it, so these also need to be accounted for.
Use a finance calculator
Some of the most helpful tools you can use when you’re buying a car are finance calculators. These calculators allow you to adjust the interest rate and term, along with your down payment amount, among other things, and you can see the estimated monthly payment amount for the loan amount you’ve chosen.
Finance calculators can help you understand part of how a loan works, but you can’t rely on just these tools for a purchase as big as a car. Between your budget and your finance calculators, you should have a clearer idea of what you can purchase. But without knowing what your credit looks like, you won’t really have a good idea of what your rate will be.
Check your credit report
Once a year, you’re entitled to a free credit report from each of the major credit reporting agencies (Equifax, Experian and TransUnion). When you have your credit reports, you’ll be able to see how your credit stacks up. Generally speaking, the better your credit, the lower your rate can go.
It’s also important to go over the items on your credit report just to make sure there are no surprises in your credit record. Lenders often refer to a consumer’s overall credit, so it’s worth the energy to make sure yours is correct. Think of it as an investment in your future.
Get pre-qualified for your auto loan and shop rates
One of the next steps you can take is to get pre-qualified for an auto loan. Drive® offers a pre-qualification that takes two minutes or less and doesn’t impact your credit score. Once you’re pre-qualified, you can get access to our budget customizer, which has a finance calculator built into it.
Getting pre-qualified ahead of time gives you the advantage of finding out what your loan terms are so you can customize your budget to fit your loan.
What you need
You won’t need much information to get pre-qualified, but to finance an auto loan, you might need a cash down payment, a vehicle trade-in, proof of vehicle insurance, proof of your income, and proof of residence, among other things. Each lender is different and each consumer is different, so it’s best to stay flexible and keep track of your documentation while you’re shopping for a vehicle.
What can affect your auto loan
Keep in mind that different factors can affect your auto loan in different ways. Generally speaking though, a sizeable cash down payment can improve how your loan is structured, and lenders sometimes look upon that scenario favorably because it shows a commitment from the customer to purchase the vehicle.
How long you finance the loan for can also affect your monthly payment and your auto loan. Usually, if you finance for a shorter term, your payment amount will increase because you have a shorter amount of time to pay the loan back than if you select a longer loan term. But keep in mind that the longer you finance your loan, the longer you’re paying interest on that same loan.
Go shopping
Now that you’ve got an idea of what your rate might be and how much you have saved up for a down payment, you’re ready to start shopping! The market has a lot of choice in it today. Whether it’s a new, used, gas or electric vehicle, the choice is yours.
Ways of improving your chances of securing an auto loan as a new buyer
Consider a co-applicant
While buying your first vehicle is a major milestone, and likely something you really want to do on your own, it might be in your best interest to consider a co-applicant. A parent, grandparent or spouse with steady income and good credit can help in several ways.
We already know how a down payment can help. A co-applicant may give you a hand in getting a loan, a higher loan amount, or a lower rate, too. Of course, all of this is dependent on your co-applicant’s income and credit history as well.
Work on your credit score
If you don’t have a credit history, or you have non-prime credit, it might be a good idea to work on your credit score to improve your chances at either an approval or better loan terms. Working on your credit score could be anything from disputing inaccurate items on your report, to changing how you pay your creditors.
